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Landmark agreement makes credit fixes simpler

New York Attorney General Eric Schneiderman announced that the three largest credit-reporting agencies will change the way they handle records in a major revamp long sought by consumer advocates.(Photo: Bebeto Matthews, AP)

NEW YORK — Fixing an error on a credit report may become less of an ordeal for the nation's roughly 200 million credit users in the wake of a landmark agreement with the largest credit-reporting agencies that aims to make the process fairer to consumers.

New York State's Attorney General Eric Schneiderman announced the deal, struck with Experian Information

Solutions, Equifax Information Services and TransUnion at a news conference Monday. The reforms, he said, will help millions of consumers get the financial help they seek to pay for cars, homes and tuition by clearing up inaccuracies on their credit reports. Though negotiated by Schneiderman, the new rules will be applied nationwide.

"The credit-reporting system in America ... suffers from inaccuracy and often from outright injustice,'' Schneiderman said. "The nation's largest reporting agencies ... have accepted to a degree they haven't in the past the responsibility that comes with that role, to ensure the fairness of the dispute process and their data.''

Lenders, such as banks and credit card companies, as well as collections agencies, report accounts and payment histories to the credit-reporting companies. Those firms then score an individual's collective credit data, and that metric is used by creditors to determine whether a consumer can get a loan, and what interest they'll pay if they do. A consumer's payment history can mean the difference between having to put down a deposit with a utility company, paying higher premiums on an insurance policy and whether they can get a job with some employers.

Often, when consumers have tried to challenge a negative posting, credit-reporting companies have maintained the negative information based on the lender's say. Now, the credit-reporting agencies will have to rely on more than the lender's word and do an independent inquiry into the consumer's claim.

"That is a rubber-stamp approach that will no longer take place after today's agreement,'' Schneiderman said. "They have to do their own independent investigation.''

Other key changes will deal with the reporting of medical debt. At least a fifth of all consumers see their credit negatively affected because of medical debt, and often it is an insurance company's delayed payment that causes the delinquency, Schneiderman says.

Going forward, medical debts cannot be reported for 180 days, giving insurance companies time to make good on claims. And the credit-reporting companies will erase previously reported medical debts that have been, or are currently being paid off, instead of leaving them to scar a credit report for seven years.

Debts, for tickets, fines and other obligations that a consumer did not enter an agreement to pay, can no longer be reported. And under the new plan, consumers whose disputes are not resolved to their satisfaction will get information on what they can do to follow up.

The Consumer Data Industry Association, the trade group representing the three credit-reporting firms, said in a statement that the agreement came about after months of discussions between it, Schneiderman and other state attorneys.

"The National Consumer Assistance Plan we are announcing today will enhance our ability to offer accurate reports and make the process of dealing with credit information easier and more transparent for consumers," said Stuart Pratt, president and CEO of the CDIA. The group added that credit-reporting firms had already been trying to ease the dispute process, including a move in 2013 to allow credit users to upload documents that enabled them to challenge lenders.

Calls for more transparency in the credit industry have been growing in recent years and have led to changes that include a growing list of financial institutions saying they will offer consumers their credit scores at no cost.

But the deal announced Monday will bring about the most significant changes to the credit bureaus' practices since the Fair and Accurate Credit Transactions Act of 2003, which mandated that the agencies provide a free credit report once a year, and the creation of a website where consumers could access them.

"It's monumental,'' John Ulzheimer, president of consumer education for CreditSesame.com, said of the agreement. "The medical collection changes, as well as the changes to the consumer dispute process, are kind of equally the crown jewels of the settlement agreement.''

A person's credit history "transcends so many parts of our lives,'' he noted. "Not only can it cause you to be denied something that you really shouldn't have been denied ... but even if you are approved for something, like a loan, it can be priced in such a way that's not reflective of your risk.''

The changes will roll out over the next several months, and CDIA said that "dialogue continues with additional attorneys general, and further announcements could be made in coming months.''